Joseph Gomes

Joseph Gomes from Noble Capital Markets inquired about the breakdown of volume versus price increases contributing to the outperformance, future pricing strategies to offset tariffs, and the current favorability of end markets compared to earlier anticipations.

Answer

Dave Sylvester, Senior Vice President and Chief Financial Officer, explained that the Americas' 8% order growth was primarily volume-driven, with price benefits contributing only a couple of percent. He stated that year-over-year inflation and tariff costs were offset by earlier pricing actions but declined to comment on future pricing. Sylvester also noted that end markets are more favorable than anticipated, with strong large corporate demand exceeding expectations despite declines in the education sector.

Joseph Gomes inquired about the breakdown of Steelcase's outperformance in Q2 fiscal 2026 between volume and price increases, plans for future pricing actions to offset tariffs, and the current favorability of end markets compared to earlier anticipations.

Answer

David Sylvester, SVP & CFO, Steelcase, indicated that Americas order growth was primarily volume-driven, with price benefits contributing only a couple of percent. He noted that Q2 pricing actions offset year-over-year inflation and tariff costs, but cumulative catch-up would take a few more quarters. Sylvester also stated that end markets, particularly large corporate demand, were more favorable than anticipated, despite declines in the education business.

Joseph Gomes from Noble Capital Markets inquired about the breakdown of revenue outperformance between volume and price increases, future pricing strategies, and the current favorability of end markets compared to earlier anticipations.

Answer

CFO Dave Sylvester clarified that volume growth contributed more to the Americas' 8% order growth than price increases, which were only a couple of percent. He stated that the company would not comment on future pricing actions but confirmed that current pricing benefits offset year-over-year inflation and tariff costs. Sylvester also noted that end markets are more favorable than anticipated, with strong large corporate demand offsetting declines in the education sector.

Joseph Gomes from NOBLE Capital Markets asked for clarification on the timing of the Q4 tax items and related variable compensation, the economic assumptions underlying the fiscal 2026 guidance, and the company's plans for share buybacks.

Answer

SVP and CFO David Sylvester clarified that the favorable tax items resulted from a December regulation change and newly implemented tax strategies, which in turn triggered variable compensation adjustments. He noted the FY2026 guidance considers some macro headwinds but is supported by a strong backlog and positive customer sentiment. Regarding buybacks, he stated the plan for fiscal 2026 is to continue offsetting dilution, similar to the previous year.

Joseph Gomes asked what is needed for a sustainable recovery in the International segment beyond macro trends. He also inquired about the potential business impact from a new administration's return-to-office push for federal workers and whether the laminate supplier issue could extend beyond Q4.

Answer

CFO Dave Sylvester cited continued return-to-office in Western Europe, targeted account strategies, and a potential bottoming in China as drivers for international recovery. He sees the federal return-to-office push as a positive driver for activity. Regarding the supplier issue, he acknowledged that the disruption could potentially extend beyond the fourth quarter as the supplier catches up on pent-up demand.

Joseph Gomes of NOBLE Capital Markets questioned the rationale behind raising equity via an ATM program while simultaneously holding significant investments on the balance sheet, seeking to understand the capital allocation thought process.

Answer

CEO Samir Tabar explained the ATM filing was a 'mechanical renewal' for flexibility and not a change in philosophy. He emphasized that liquidity is critical for executing strategic initiatives and building customer trust. He noted the company balances funding sources by selling some digital assets (Bitcoin) and is actively pursuing non-dilutive mortgage financing for its data centers to fund growth with cheaper capital.

Joseph Gomes questioned how the margins on the Boosteroid contract compare to the anchor HPC contract, whether the mining segment's gross margin was stable throughout the quarter, the reason for the sequential decline in fleet efficiency, and if there are any costs associated with the anchor customer's order delay.

Answer

CEO Samir Tabar explained that while margins for the Boosteroid contract are good, they are not as high as those for the H100s with the anchor client. Executive William Schnier stated that mining gross margin was relatively steady throughout the quarter and clarified that fleet efficiency actually improved, not declined. Schnier also confirmed that the company has not incurred major costs from the customer delay, as they had only ordered long-lead time networking equipment and not the H100 servers themselves, for which lead times are now short.

Joseph Gomes asked if the goal to double AI clients to 300 this year was now too conservative, inquired about hiring challenges or wage pressure for AI consultants, and questioned how the ISG Tango platform contributes to revenue.

Answer

CEO Michael P. Connors did not provide a new AI client target but expects a large majority of all clients will have an AI component by mid-2026. He stated there is no significant wage pressure. Regarding the ISG Tango platform, which now has over $9 billion in contract value, he explained its primary benefits are margin acceleration through efficiency and opening up the mid-market, which was instrumental in winning a recent multimillion-dollar deal.

Joseph Gomes of Noble Capital Markets asked for the basis of management's confidence in improving market conditions despite economic uncertainty and also requested a ranking of priorities for the use of cash, specifically regarding debt paydown, M&A, and share repurchases.

Answer

Michael P. Connors, Chairman and CEO, explained that confidence stems from post-election certainty in the U.S., increased demand for cost optimization services driven by tariff concerns, and strong double-digit growth in key verticals like banking and energy. Regarding cash allocation, Connors prioritized M&A and share buybacks after reducing debt to a target level of around 2x EBITDA, stating he sees no need to lower debt levels further.

Joseph Gomes asked for clarification on the sequential revenue decline in the Q4 guidance, the growth of the mid-market segment within the ISG Tango platform, and whether the company should be more aggressive with its share repurchase program.

Answer

CEO Michael P. Connors explained the Q4 guidance appears lower because it excludes $7-8 million in revenue from the recently divested automation unit, indicating underlying growth. He also confirmed the mid-market segment on the Tango platform is growing on a larger contract value base. CFO Michael Sherrick added that ISG expects to accelerate its share buyback program, noting they were inactive in Q3 due to the divestiture transaction.

Joseph Gomes sought clarification on the drivers behind the year-over-year changes in revenue lines, the potential proceeds from refranchising all Fazoli's locations, the cause of increased litigation expenses, and any observable sales or traffic trends early in the second quarter.

Answer

Chairman of the Board Andrew Wiederhorn confirmed that revenue declines were primarily due to the closure of Smokey Bones locations for conversion and same-store sales softness. He estimated that refranchising Fazoli's could generate $20-$25 million for debt paydown and save $2.5-$3.5 million in overhead. Wiederhorn stated that he expects litigation expenses to end in Q2. For Q2 trends, he noted modest declines in snack concepts, industry-level declines for burgers, but resilient performance in the pizza category.

Questioned the disconnect between positive commentary and negative financial trends (operating loss, revenue declines), the timeline for increasing factory utilization, plans for refinancing debt beyond Twin Peaks, and which brands are attracting the most franchisee interest.

Answer

The negative trends are primarily due to underperformance at the recently acquired, corporate-owned Smokey Bones chain and pressure on company-owned Fazoli's stores. A major third-party deal for the factory is expected to be announced in Q1. A sequential plan is in place to refinance debt, starting with Twin Peaks, then Fazoli's, with a goal to deleverage and redeem preferred stock in 2025. Franchisee interest is strong and spread across multiple brands like Roundtable Pizza, Fazoli's, and Twin Peaks.

Joseph Gomes of G. Research, LLC inquired about several key areas, including the expected revenue run rate for the remaining CMOP contracts, the potential impact from NIH budget reallocations, the timeline for small business set-aside headwinds to conclude, the ramp-up status of a significant Navy contract, and the effect of the new administration's policies on the timing of contract awards from the company's bid pipeline.

Answer

CFO Kathryn M. Johnbull stated the quarterly run rate for remaining CMOP locations is expected to be $23 million to $25 million. Executive Zachary C. Parker confirmed DLH was not impacted by a specific NIH study cancellation but noted potential risks around grant-funded research. Parker projected the small business set-aside pressures would largely run their course by the end of Q3, with revenue impact diminishing by Q4. He also explained that while the bid pipeline is robust, award timelines have been 'sliding to the right' due to increased administrative oversight and personnel reductions within government procurement departments.

The analyst inquired about the specific drivers of the quarterly revenue decline, the status of task orders from large IDIQ contracts, updates on the InfiniByte Cloud product, and the reasons for the increase in SG&A. In a follow-up, he asked for more details on the CMOP contract rebids and the potential impact of the government's continuing resolution on the business.

Answer

The company detailed the revenue decline, attributing it primarily to a DoD contract unbundling ($5M), the wind-down of acquired small business contracts ($1.5M), exiting international work ($1.5M), and service timing slips ($2M). They noted that recent IDIQ wins, particularly on Oasis, are positioning them to prime opportunities that had shifted from other vehicles. The InfiniByte Cloud platform is being upgraded to version 2.0 to expand its versatility. The SG&A increase is due to strategic investments in organic growth differentiators like cybersecurity and modeling. Regarding CMOP, the situation is fluid and competition-sensitive; they have partnered with a small business on select bids. They do not anticipate a material impact from the continuing resolution as their programs are largely appropriated and have bipartisan support.

Joseph Gomes of NOBLE Capital Markets inquired about the size and justification for ongoing integration charges, the outlook for the Federal government business, the current M&A environment, and sought clarification on the complete exit from the PersolKelly joint venture.

Answer

Chief Financial Officer Troy Anderson confirmed quarterly integration charges of around $10.7 million would continue, explaining they cover IT and severance costs for integrating MRP and legacy acquisitions. He detailed an expected near-term negative impact from the Federal business but noted potential for future recovery. Chief Executive Officer Peter Quigley described the M&A market as quiet with high seller expectations, reaffirming Kelly's focus on strategic areas like therapy. Troy Anderson also confirmed the PersolKelly sale was final.

Joseph Gomes of G. Research, LLC inquired about the performance of the Education segment, seeking clarity on its Q4 growth rate compared to the full year, details on new customer wins and pipeline momentum, and the current M&A environment, including deal flow and seller valuation expectations.

Answer

CEO Peter W. Quigley explained that the Education segment's Q4 growth was impacted by two hurricanes but still exceeded 12%. He noted that Kelly continues to gain market share by competing on value and is optimistic about its therapy business. Regarding M&A, Quigley stated that deal flow remains in a trough, with a persistent disconnect between seller valuation expectations and performance, though Kelly continues to monitor opportunities.

Joseph Gomes asked about the timeline and scale of future integration costs for Motion Recruitment Partners (MRP), the drivers behind the year-over-year gross profit rate declines in most segments, and the variance between the Q3 adjusted EBITDA margin and prior guidance.

Answer

CEO Peter W. Quigley clarified that major MRP integration will begin after the earn-out period ends in Q1 2025. CFO Olivier Thirot added that 2025 costs will be mainly for technology integration. Thirot then detailed the organic gross profit rate pressures: P&I was stable due to mix, Education felt pressure in its low season, and OCG's rate was diluted by growth in lower-margin PPO. For the EBITDA margin, Thirot explained that unexpected revenue softness in the SET segment during July and August was the primary reason for falling short of the ~3% forecast, though trends improved in September.

Speaking on behalf of Joe Gomes, an analyst asked about the progress of the MRP integration and any resulting new business, the current M&A environment, and requested an update on the Kelly Arc talent platform.

Answer

CEO Peter W. Quigley explained that MRP will continue to operate under its current brands, but collaboration between the teams is strong and has already created joint opportunities. He described the M&A environment as similar to the prior quarter, with deal flow still subdued but relationship-building ongoing. Regarding Kelly Arc, Quigley noted that while adoption takes time, the AI and automation talent platform has dozens of customers and hundreds of professionals, with optimism for its future network effect.

Joseph Gomes of Noble Capital Markets inquired about the existence of additional undisclosed letter agreements with ICE, the capacity expansion from recent CapEx, and CoreCivic's interest in managing soft-sided facilities.

Answer

CEO Damon Hininger stated there were no hidden agreements but would not be surprised to see more soon, given ICE's intense need for capacity. CFO David Garfinkle added that the new CapEx is for leaning forward on activating almost all idle facilities. Hininger confirmed strong interest in managing soft-sided facilities, citing their rapid activation capabilities demonstrated at the Dilley facility and their responses to all recent ICE RFIs.

Joseph Gomes asked for a big-picture view on ICE's total capacity needs, the potential impact of alternatives like Guantanamo Bay, details on reopening the South Texas facility, the possibility of exceeding rated capacity at other facilities, and how increased CapEx might affect share repurchases.

Answer

CEO Damon Hininger estimated a total need of 150,000 to 200,000 beds, driven by new policies and the Laken Riley Act. He detailed CoreCivic's value proposition on cost, logistics, and experience, noting a 28,000-bed proposal is already with ICE. CFO David Garfinkle quantified the potential EBITDA uplift from idle capacity at $200M-$275M. President Patrick Swindle and Hininger confirmed the South Texas facility could be activated quickly and that other facilities have flexible capacity. Garfinkle stated that the planned CapEx is already factored into their capital allocation strategy and would not impede share repurchases, though the pace could be affected by the timing of activations and other M&A.

Joseph Gomes asked for more detail on the Community segment's performance, including its revenue per mandate and operating expenses. He also inquired about the potential reactivation of the South Texas facility and the competitive landscape for the ATD contract.

Answer

CFO David Garfinkle attributed the Community segment's operating expense increase to a legal settlement and explained the per diem reduction was due to a mix shift between federal and local partners. CEO Damon T. Hininger confirmed the South Texas facility is being kept in a 'warm status' and they are prepared for reactivation if ICE has a need. Regarding the ATD contract, Hininger believes the scale required limits the field to a few large competitors but noted the RFI might also aim to identify smaller, specialized partners for specific program components.

Joseph Gomes of NOMA Capital asked for more color on the market entry challenges in Missouri, the reason for the significant year-over-year decline in marketing and promotion spending, and an update on the company's efforts to secure a retail location in Ohio.

Answer

Chief Commercial Officer Ryan Crandall explained that Missouri's market is challenging due to strong reciprocal buying networks among localized operators, but he is confident MariMed's strong brands will continue to gain traction. CFO Mario Pinho stated the reduction in marketing spend reflects a strategic shift towards more targeted, localized marketing efforts. CEO Jon Levine detailed the difficulties in securing an Ohio retail location, citing issues with local support, zoning setbacks, and banking for real estate, but noted they are actively looking and hope to secure a site by year-end.

Joseph Gomes from NOBLE Capital Markets asked about the competitive landscape for tactical drones, other technologies being repurposed for commercial use, and priority areas for potential tuck-in M&A.

Answer

CEO Eric DeMarco expressed strong confidence in Kratos's tactical drone portfolio, stating no competitor's actions were a concern. He highlighted several dual-use technologies, including robotic truck kits, OpenSpace software, and jet engines. For M&A, he identified microwave electronics and turbomachinery as top priorities.

Joseph Gomes from Noble Capital Markets asked for an update on the international target drone opportunity and the current status of the company's driverless vehicle solutions business.

Answer

CEO Eric DeMarco explained that the international target drone business is experiencing significant growth with high margins, driven by allied nations acquiring new air defense systems and F-35s. Regarding driverless vehicles, he stated the business is 'doing great,' addressing the truck driver shortage with a low-cost kit. While currently small, he expects it to be financially material and discussed more routinely by 2026.

Joseph Gomes of NOBLE Capital Markets requested an update on the company's franchising initiatives, its current pricing strategy, and the thought process behind balancing new company-owned store growth with balance sheet deleveraging.

Answer

CEO Emanuel Hilario reported significant progress on franchising, having built out the internal infrastructure and raised market awareness, which has led to a strong pipeline of interested parties now in development negotiations. He confirmed the company is maintaining a conservative pricing strategy to prioritize traffic growth and market share gains. On capital allocation, Hilario explained the focus is on balancing shareholder returns with managing business risk, with a long-term goal to increase asset-light growth while still developing high-return company-owned locations from its current real estate pipeline.

Joseph Gomes of NOBLE Capital Markets asked about the significant margin decline in the electronic monitoring segment, the lack of specific funding for Alternatives to Detention (ATD) in proposed ICE budgets, the recent plateau in ICE detainee populations, and GEO's potential interest in a new facility RFP in Alabama.

Answer

CFO Mark Suchinski attributed the electronic monitoring margin pressure to a product mix shift away from higher-margin phones to GPS devices. CEO Dave Donahue and CFO Mark Suchinski explained that ICE's current priority is detention capacity, with ATD funding expected to clarify as the budget process matures. Donahue noted the detainee plateau is due to capacity constraints that new contracts will soon alleviate. He also confirmed that while GEO is aware of the Alabama opportunity, its primary focus remains on federal partners, making it a 'back burner' issue.

Joseph Gomes of NOBLE Capital Markets questioned the direct correlation between the revenue and Net Operating Income decline in the Electronic Monitoring segment. He also sought clarification on the 2024 debt reduction progress versus stated goals and inquired about potential growth opportunities with the U.S. Marshals and Bureau of Prisons (BOP), as well as the capital expenditure needed to scale the ISAP program.

Answer

CEO Brian Evans and Executive Chairman George Zoley explained the revenue/NOI decline was a coincidence driven by changes in the service mix. Evans clarified that the debt reduction goal was impacted by one-time refinancing fees of $40-50 million, and without them, they were on track. Zoley noted that in the short-term, all available capacity would likely be prioritized for ICE, but long-term, both the Marshals and BOP could represent expansion opportunities. Regarding ISAP CapEx, Zoley explained it depends on the mix of monitoring devices used.

Joseph Gomes of NOBLE Capital Markets inquired about the potential peak for gross margins in a normalized market and sought additional details on navigating the prolonged downturns in the truck, construction, and agriculture sectors.

Answer

Executive Andy Cheung stated that in a normalized environment, CVG aims for a high single-digit EBITDA margin, which would entail achieving a gross margin of approximately 15%. President and CEO James Ray added that the company's ability to manage tariffs, inflation, and freight costs will be crucial for margin expansion. Regarding the market downturns, Ray explained that strategic cost actions taken in 2024 have improved the company's flexibility, allowing them to pursue margin expansion even in a low-demand environment by surgically removing costs without compromising the ability to respond to an eventual market recovery.

Joseph Gomes of NOBLE Capital Markets questioned the slowdown in new business wins in Q4 2024 and sought reassurance on the 2025 program ramps after delays in 2024. He also asked for the strategic rationale behind reintegrating the Aftermarket segment into other business units.

Answer

President and CEO James Ray explained that Q4 is a seasonally slow period for new business awards but the pipeline remains strong. He expressed confidence in 2025 ramps, noting that delayed 2024 programs are now shipping and new wins will constitute about 15% of Electrical Systems revenue. Regarding the Aftermarket segment, Mr. Ray detailed that its reintegration enhances operational efficiency, improves resource allocation for engineering and production, and streamlines customer interactions, ultimately helping to lower SG&A and improve plant utilization.

Joseph Gomes asked for clarification on the release of historical adjusted results for continuing operations, the remaining scope of the company's portfolio restructuring, and the reasoning behind the weak implied Q4 adjusted EBITDA guidance.

Answer

Executive Andy Cheung confirmed that historical data for continuing operations can be derived from the Q3 filing's year-to-date figures and that Q4 weakness is driven by seasonal volume declines. CEO James Ray elaborated that major portfolio divestitures are complete, and the company is now entering a stability phase focused on improving its margin profile, with no immediate plans for further divestitures.

Joseph Gomes inquired about the potential impact of the Equinor Empire Wind 1 project pause, specifically the ability to backfill the Acadia vessel's schedule in a worst-case scenario. He also asked about the pace of bid awards year-to-date and the current competitive landscape.

Answer

President and CEO Lasse Petterson stated that while it would be difficult to fill the Acadia's time slot on short notice, the contract contains cancellation fees. CFO Scott Kornblau added that termination provisions are standard and noted a legal challenge has been filed against the project pause. Regarding the market, Petterson and Kornblau explained that the bid market pace is seasonally typical, with coastal restoration projects expected in Q2/Q3, and the competitive environment remains stable, allowing GLDD to be selective with bids.

Joseph Gomes of NOBLE Capital Markets inquired about the 2025 bid market outlook, the impact of a recent court ruling on non-Jones Act vessels for rock installation, and the status of Title XI funding for the company's newbuilds.

Answer

CEO Lasse Petterson stated that the company's strong backlog provides confidence for 2025 and 2026, minimizing the impact of any potential bid market delays. CFO Scott Kornblau added that coastal protection projects are less likely to face delays. Regarding the court ruling, Kornblau clarified it does not change their competitive position, as the larger scope of rock installation work remains Jones Act protected. He also noted that while Title XI funding is paused, the company has secured alternative financing, making the government loan a 'nice to have' rather than a necessity.

Joseph Gomes of G.A.C. Corp inquired about the project award environment for the fourth quarter, potential delays for the Acadia vessel due to the Philly Shipyard sale, and the current competitive landscape for dredging vessels.

Answer

CFO Scott Kornblau stated that $90 million in low bids were awarded post-quarter, with more expected. He also noted increased optimism for the Tellurian LNG project following its acquisition by Woodside. CEO Lasse Petterson added that Q4 and Q1 are typically slower for bidding. Regarding the Acadia, Petterson explained the shipyard sale is pending regulatory approval but the new owner's ambitions are positive. He also stated the competitive environment is stable, supported by a strong bid market and a competitor's retirement of two dredges.

Joseph Gomes of NOBLE Capital Markets inquired about the mix of consumable versus non-consumable products regarding tariff exposure, new strategies for converting the B2B sales pipeline, and the current status of the company's share repurchase program.

Answer

CEO Gerry Smith explained that key consumables like paper are sourced domestically, avoiding tariff exposure, while other product price increases are market-wide. He emphasized that the procurement team has actively mitigated exposure. To convert the B2B pipeline, Smith highlighted hiring new leadership with category expertise and implementing a more rigorous daily management system. Regarding the share buyback, Smith stated that while the board continually evaluates repurchases, it does not comment on specific buying decisions due to various potential constraints.

Joseph Gomes of Noble Capital Markets asked for a quantifiable financial impact from the recent hurricanes and sought more detail on the competitive landscape and specific opportunities in new adjacent markets beyond hospitality.

Answer

CEO Gerry Smith described the hurricane impact as the 'biggest' in his tenure but stated it was 'very difficult' to quantify a precise number due to prolonged disruption to stores, distribution centers, and B2B activity. Regarding new markets, he identified healthcare, elder care, and cruise lines as potential adjacencies to hospitality. He argued ODP's competitive advantage lies in its existing nationwide delivery network and sophisticated costing capabilities, which allow it to efficiently add new product lines for existing customers.

Joseph Gomes of Noble Capital Markets inquired about the impact of a large B2B contract, the specifics of international and U.S. price increases, and details regarding a recent acquisition in Australia and New Zealand.

Answer

President and CEO Tom Tedford clarified the B2B contract was a one-time Q1 event, and without it, Kensington's sales would have been flat. He stated the international price increase was about 2%, while U.S. price actions are ongoing to counter tariffs. Tedford also detailed that the recent acquisition expands ACCO into the ergonomic seating category in Australia and New Zealand, with potential for future global expansion.

Joseph Gomes inquired about ACCO Brands' strategy for improving sales trends, asking what differentiates the current approach from past efforts. He also sought an update on gaming partnerships and distribution in Japan, and questioned the outlook for retailer inventory levels ahead of the back-to-school season.

Answer

President and CEO Tom Tedford explained that future growth will rely more on gaining share and entering adjacent categories like ergonomics, as existing categories face headwinds. He noted that while gaming was strong in 2024, driven by new products and international expansion like in Japan, he anticipates headwinds in early 2025 due to Nintendo's console transition. Regarding retailer inventory, Tedford expects a conservative approach similar to last year, with no significant headwinds or tailwinds anticipated.

Joseph Gomes asked for the key reasons behind the 'muted demand environment' beyond back-to-school. He also inquired about the remaining impact of the low-margin business exits in Q4 and requested more details on the company's expansion into nontraditional channels.

Answer

President and CEO Tom Tedford attributed muted office product demand to the permanence of hybrid work and accelerated digitalization, while noting improving trends in technology accessories. EVP and CFO Deb O'Connor stated the impact from exiting low-margin business will be smaller in Q4. Tom Tedford added that tests in nontraditional value channels for back-to-school were successful, and the company plans to expand its presence there.

Joseph Gomes of G.A. Capital asked about the potential for the 'Group of 7' underperforming plants to reach the company's overall 10% EBITDA margin target, the progress in growing the medical and electrical components businesses, and the potential impact of tariffs on the Class 8 truck market.

Answer

Executive Harold Bevis and COO Tim French explained that the 'Group of 7' plants can improve margins through increased revenue from open capacity and reshoring wins, noting 11 programs are moving from China to the U.S. French added that clearing backlogs led to better customer scorecards, enabling new sales. Bevis detailed the plan to grow the medical business to $50 million organically and highlighted progress in the stamped and electrical product pipelines. Regarding tariffs, Bevis clarified that NN's exposure is primarily to work trucks (Class 6-7), not Class 8, and the direct impact on their business is minimal.

Joseph Gomes asked about the drivers behind the third-quarter gross margin decline, the source of revenue growth in the electrical market, the current revenue run-rate and capacity expansion status for the medical business, and the composition of the 'other income' line item.

Answer

President and CEO Harold Bevis attributed the margin dip to a temporary, unfavorable product mix in the Power Solutions segment that has since corrected. SVP and CFO Christopher Bohnert detailed that electrical market growth is driven by grid updates and strong demand from key customers. Regarding the medical business, CEO Harold Bevis and SVP & COO Tim French confirmed new dedicated machinery is being installed in Q4 to support new business wins. CFO Christopher Bohnert clarified the 'other income' was the gain from the sale of the Lubbock plant.

Joseph Gomes requested an update on Foreign Military Sales (FMS) traction, asked about significant re-compete opportunities for contracts V2X does not currently hold, and inquired about the latest pipeline metrics for submitted bids and the 12-month outlook.

Answer

President and CEO Jeremy Wensinger noted ongoing FMS opportunities but cautioned that their award pacing is slow. He stated the pipeline is focused on gaining market share on existing work, with substantial bids outstanding. CFO Shawn Mural deferred on specific pipeline metrics, explaining that the new Chief Growth Officer is conducting a review, but Wensinger added that bid velocity is expected to increase in 2025.

Joseph Gomes of NOBLE Capital Markets asked for a breakdown of the 8% revenue growth, the reasons for the revenue decline in Europe, and the outlook for revenue growth and margins in 2025.

Answer

SVP & CFO Shawn Mural explained that the 8% growth was a mix of new program contributions, like the Saudi contract, and increased on-contract activity, particularly in INDOPACOM and the Middle East. He noted the European decline was due to lower volume on a specific program compared to the prior year but emphasized a strong underlying presence and future opportunities. For 2025, Mural reiterated that V2X will grow but declined to give a specific rate, projecting 2025 margins to be similar to 2024's, acknowledging that new contracts start at lower margins.

Joseph Gomes asked new CEO Jeremy Wensinger for his initial impressions of V2X, his primary focus areas, the pace of contract awards, and the status of the new business pipeline.

Answer

President and CEO Jeremy Wensinger stated he is impressed with the company's people and complex global operations. His focus is on execution, performance excellence, and optimizing the business post-integration to leverage the combined company's full portfolio. SVP and CFO Shawn Mural added that the Q2 book-to-bill was approximately 0.7, consistent with a muted award environment in the first half, but he expects the pace to increase in the second half of the year.

Joseph Gomes challenged new CEO Ken Traub on the company's long-term performance decline, questioning if Comtech is a fundamentally bad business that even a brilliant manager can't fix. He also asked CFO Mike Bondi to explain the significant miss on Q1 revenue and adjusted EBITDA compared to guidance provided late in the quarter.

Answer

Kenneth H. Traub, Chairman, President and CEO, acknowledged the disappointing history but affirmed his belief that the company has valuable assets, technology, and talent that can be fixed, stating he is better suited for the turnaround. CFO Michael Bondi explained the guidance miss resulted from post-call adjustments to contract estimates and an unexpected $20 million charge for an unbilled receivable reserve.

Joseph Gomes asked for more color on the magnitude of the change in cost-to-complete estimates from the Q4 scrub, the current status of the protested TFSR contract, and the reasons for the significant decline in R&D spending as a percentage of revenue over the last three years.

Answer

CFO Mike Bondi stated the Q4 impact was significant, resulting from both cost estimate adjustments and the delay of a large, unpredictable foreign military troposcatter order. Regarding R&D, he clarified that a substantial portion is now customer-funded and recorded in cost of sales, not as a standalone R&D expense. CEO John Ratigan added that the TFSR contract protest has been unusually prolonged with repeated filings and offered no certain timeline for resolution. He affirmed the current R&D approach balances investment with efficiency, citing customer-funded digital modem projects.

Joseph Gomes asked for more detail on the significant gross margin improvement, the performance of the Reference Point acquisition, and the reasoning behind the level of stock buybacks.

Answer

CFO Jennifer Ryu explained the sequential gross margin improvement was due to better pay-bill ratios, higher utilization, and favorable holiday timing. Executive Kate Duchene stated that Reference Point is performing to expectations and is being integrated to expand its solutions. CFO Jennifer Ryu attributed the level of buybacks to timing, noting the company wanted to complete its technology transformation first and expects to increase repurchase activity going forward.

Joseph Gomes asked for insight into Graham's strong space segment performance, which seems to buck a broader market slowdown, and inquired about the potential business impacts from the recent U.S. election on its defense and energy markets.

Answer

Matthew Malone, VP & GM of Barber-Nichols, explained that the space segment's growth is driven by a shift toward value-added assets like satellite cooling and advanced propulsion. President and CEO Daniel Thoren addressed the election, stating that strategic Navy programs are secure and that while energy markets may see shifts, the company's diversified model provides resilience.

Inquired about the rationale for closing the Colorado distribution center after it was previously touted as a key asset, the competitive reaction to the company's pricing strategy, and the current outlook on M&A.

Answer

The distribution center was 'mothballed' to free up capital and resources to focus on the more immediate priority of retail execution in challenging markets; the mature Colorado market can handle logistics without it for now. The competitive response to pricing has been modest, with the company focusing on precise, market-by-market pricing strategies. The primary focus is on strengthening the core business before pursuing significant M&A, though small, opportunistic deals are being considered.

Inquired about data on customer acquisition improvements, the impact of the medical sales mix on gross margins, and the company's cash flow and liquidity position.

Answer

Loyalty program penetration has increased to 68% in Colorado and 74% in New Mexico, with ongoing efforts to improve the platform. The gross margin was affected by price investments and a higher mix of medical sales (about 8% of total sales) which have a lower margin around 35%. Cash was used for strategic price investments to gain market share, and the company is comfortable with its current cash position, expecting to free up more through inventory management and restructuring.